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How Consumers Respond to Product Certification: A Welfare Analysis of the Energy Star Program
RFF Academic Seminar

Presenter
Sébastien Houde, PhD Candidate, Management Science and Engineering, Stanford University

Abstract
This paper quantifies the welfare effects of Energy Star certification, a voluntary labeling program managed by the US Environmental Protection Agency (EPA). Using a unique dataset of the US refrigerator market, I first provide evidence that consumers differ in the way they respond to Energy Star and trade off energy efficiency with other refrigerator attributes: some consumers rely mostly on Energy Star and are somewhat insensitive to energy (electricity) costs, others rely primarily on energy costs, and a non-negligible fraction of consumers appears to be insensitive to both energy costs and Energy Star. These heterogeneity patterns provide justification for my structural model of demand where I explicitly model consumers’ decisions to rely on the Energy Star label or form expectations about energy costs. I propose an empirical strategy to estimate the key behavioral parameters of the model, which in turn allows me to investigate a rich set of counterfactual scenarios. My results suggest that the Energy Star program for the US refrigerator market leads to energy savings, but may not increase social welfare. Two factors contribute to these findings. First, the Energy Star certification partly crowds out efforts to fully account for energy costs. This effect may even dominate. For a range of not too restrictive parameter values, the Energy Star label may lead to less energy efficient choices on average. The second factor is related to how manufacturers respond to the certification.

Date
Thursday, November 17, 2011
12:00 - 1:30 p.m.

Lunch will be provided.

Location
7th Floor Conference Center
1616 P St. NW
Washington, D.C. 20036

All seminars will be in the 7th Floor Conference Room at RFF, 1616 P Street NW. Attendance is open, but involves pre-registration no later than two days prior to the event. For questions and to register to an event, please contact Khadija Hill at Khill@rff.org (tel. 202-328-5174). Updates to our academic seminars schedule will be posted at www.rff.org/academicseminarseries.

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